Deutsche Telekom Posts $27 Billion Loss

DAVID McHUGH

Published 7:00 pm, Sunday, March 9, 2003

AP Business Writer

Deutsche Telekom, Europe's largest telecommunications firm, reported the worst annual loss in modern German corporate history Monday _ 24.6 billion euros ($27.1 billion) for 2002 _ but insisted it was on track to cut debts piled up during a buying spree before the telecom bubble burst.

Investors drove the stock price nearly 10 percent lower, however, after Telekom gave few specifics on how the former government utility would reduce costs and debt.

Chief executive Kai-Uwe Ricke said the bulk of last year's red ink came from accounting charges for the fallen value of acquisitions, but he conceded that the staggering net loss "mirrored the very serious situation" Telekom faced last year.

"We're conscious of the scale of this figure," he said at the company's annual news conference. "There's no way to put a good face on it."

The full-year loss for 2002 compared with a loss of 3.5 billion euros a year earlier.

In the fourth quarter, its loss narrowed to 100 million euros ($110 million) versus a loss of 2.5 billion euros the same period in 2001. Revenue rose to 14.5 billion euros ($15.95 billion) from 13.3 billion euros a year earlier.

Most of the annual loss came in the third quarter when the company lost a net 20.6 billion euros, a figure swollen by one-time writedowns for licenses for the next generation of mobile phone service.

That included 8.4 billion euros for the reduced value of the acquisition T-Mobile USA, formerly Voicestream, and 9.6 billion euros for U.S. mobile phone licenses.

Overall, analysts said it was the biggest annual loss for a German company since World War II. "I can't recall a bigger loss, not since the war," said Rolf Elgeti, an equity strategist for Commerzbank who tracks major German companies.

The writedowns represent the end of the technology boom, during which Deutsche Telekom and its rivals expanded by buying companies at prices inflated by the soaring stock market and bid furiously for licenses for the next generation of mobile telephone service.

Deutsche Telekom is now on a drive to cut debt and costs. It shaved debt from 64.3 billion euros to 61.1 billion euros ($67.2 billion) euros in the fourth quarter and remains on track to reduce debt to its 49-52 billion euro ($54-57 billion) target by the end of next year, company officials said.

The strong euro helped by cutting debt by 900 million euros ($990 million) in the fourth quarter, the company said.

"Our goals are clear: Debt reduction and profit-oriented growth," said Ricke, who took over in November after his predecessor Ron Sommer was ousted over unhappiness with the company's stock price.

But while the fourth-quarter results were positive, investors was unimpressed because of a lack of detail about Ricke's plans, analysts said.

Its shares fell 9.6 percent to close at 9.15 euros ($10.07) on the Frankfurt exchange. Its stock has fallen from a peak of 103.50 euros in early 2000.

"I think the numbers look pretty good across the board," said Commerzbank telecommunications analyst Darren Ward in London. "I think the reason the shares are down is that the market was hoping for more specifics on cost and debt reduction."

Analysts pointed to a jump in subscribers at T-Mobile USA to 9.9 million from 7.0 million as a positive sign.

"The growth rate in the U.S. is rather good," said Oliver Pfluger at WGZ Bank in Duesseldorf.

Contributing to the narrowed fourth-quarter loss was the performance of the T-Mobile International wireless division _ which includes T-Mobile USA _ where fourth quarter sales rose to 5.2 billion euros ($5.7 billion) from 4.0 billion euros a year ago. Earnings before interest rose to 1.2 billion ($1.3 billion) from 1.0 billion euros.

The Deutsche Telekom report comes only days after two French companies reported similarly mammoth losses for 2002.